Offering Voluntary Redundancy

voluntary redundancy

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Voluntary redundancy is an option for employers to consider as an alternative to making compulsory redundancies.

For employers, it is important to understand the legal and personnel issues of offering voluntary redundancy to avoid complaints and potential legal claims.

In this guide, we explain what voluntary redundancy means and how it works in practice, as well as the obligations on the employer and the rights and entitlements of employees through this process.

 

What is voluntary redundancy?

Voluntary redundancy refers to a situation where job roles are no longer needed — perhaps because your organisation has recently undergone a restructure, you have invested in new technology making a number of jobs obsolete or you simply need to reduce your payroll liabilities — but where employees are given the choice to accept being made redundant. This is therefore the process of an employee opting to take redundancy, where their employment will be terminated, typically in exchange for some kind of financial payout.

Making redundancies can be difficult for employers, and daunting for employees, where providing staff with the option to take redundancy can help to ease this process. This can be empowering for employees, giving them the means of controlling their future. By people voluntarily exiting the business, it can also help to save the jobs of those reluctant to go.

 

Difference between voluntary and compulsory redundancy

Compulsory redundancy refers to a redundancy situation in which you, as the employer, make the decision to terminate the employment of those selected for redundancy because you no longer need anyone to do the job role that they fill. Again, this might be because your business is changing what it does or doing things in a different way.

You must demonstrate that the employee’s job role will no longer exist for a redundancy to be genuine but, provided you can prove a genuine redundancy situation, a redundancy can be either compulsory or voluntary. A compulsory redundancy is where you decide who to make redundant out of the redundancy pool based on certain criteria, while a voluntary redundancy is where individuals from that pool are invited to volunteer for redundancy, although there must still be a fair and objective selection process in place.

 

Employer obligations when offering voluntary redundancy

Voluntary redundancy must follow the same process as any redundancy scenario. This means, having identified the pool of employees from which redundancies will be made, you will need to determine a fair selection criteria. The fact that an employee puts themselves forward for redundancy does not necessarily mean that they will be automatically selected, where the selection process that you use to invite people must still be fair and objective.

Even in the context of voluntary redundancies, it is still possible for allegations to arise of unfairness or even unlawful discrimination. When an employee accepts an offer of voluntary redundancy, they are not resigning, but agreeing to be dismissed by reason of the redundancy. The fact that a dismissal is voluntary does not automatically make that a fair or lawful dismissal and, by volunteering for redundancy, an employee does not lose the right to make a tribunal claim. For example, in the case of White v HC-One Oval Ltd [2022] EAT 56, in allowing an appeal from the tribunal’s decision to strike out an unfair dismissal claim, the Employment Appeal Tribunal (EAT) held that an employee who requests voluntary redundancy does not necessarily have no reasonable prospects of success.

Mrs White’s case was that her employer had manufactured a situation in which another employee was brought in to replace the claimant and one other as existing part-time workers, and that the process followed that led her to request redundancy was unfair. By focusing only on the decision to accept her request for redundancy, and thus finding that the background matters of which she complained were irrelevant, the tribunal had erred in law and the matter was remitted back by the EAT to proceed to a full merits hearing.

To ensure that voluntary redundancy is not in any way unfair, in addition to adopting a fair and objective selection criteria, you must also consult with all affected employees, informing them of the reason for the redundancies and of their redundancy rights.

 

Employee voluntary redundancy rights

Employees have the same legal rights, regardless of whether they volunteer for redundancy or are selected by their employer without choice. These rights can be broken down into three main categories: redundancy pay, redundancy notice and a reasonable time off work.

 

Redundancy pay

If an employee has worked continuously for your business for at least 2 years, they will be entitled to statutory redundancy pay based on the employee’s age and length of employment with you, counted back from the date of the dismissal. As such, a qualifying employee will be entitled to pay based on the following formula:

  • half a weeks pay for each full year of employment aged 18-22
  • one weeks pay for each full year of employment aged 22-40
  • 1.5 weeks pay for each full year of employment aged 41 or older

 

The length of service in the context of calculating redundancy pay is capped at 20 years, with weekly pay capped at £643. As such, the maximum amount of statutory redundancy pay is £19,290. As an absolute minimum, you must offer statutory redundancy pay for voluntary redundancies, together with a written explanation of how you calculated this pay.

You can also offer a much more attractive redundancy pay package, over and above the statutory minimum, including the offer of redundancy payments to employees who have not yet accrued the 2-year qualifying period, to increase the uptake of volunteers.

 

Redundancy notice period

As with any dismissal, an employee will be entitled to a statutory minimum period of notice based on the length of time that they have worked for you, calculated as:

  • at least a weeks notice for employment of between 1 month and up to 2 years
  • a weeks notice for every year employed between 2 and 12 years
  • 12 weeks notice for 12 or more years.

 

An employee may have an enhanced contractual right to longer notice. The contract may also make provision for pay in lieu of notice (PILON), where you can add any PILON to an employee’s voluntary redundancy pay, rather than requiring them to work their notice.

 

Time off work

Where an employee has been continuously employed by you for at least 2 years by the date that their notice period ends, they will also be entitled to a reasonable amount of time off work, either to look for another job or to arrange training to help them find another job.

The length of time that an employee can take off work will depend on their circumstances although, regardless of how much time is taken, the most you have to pay the employee is 40% of one week’s pay. This is the total amount and not the amount per week, for example, if an employee works 5 days a week and they take 4 days off in total during their notice period, you will only be legally obliged to pay them for the first 2 days. However, when it comes to voluntary redundancy, you may again want to offer a more lucrative arrangement.

 

Should you offer voluntary redundancy?

Even though employees still have the same rights and entitlements when it comes to either voluntary or compulsory redundancy, including a minimum amount of redundancy pay and the right to take time off work for qualifying employees, together with a minimum notice period, there are various advantages for employers when it comes to voluntary redundancy.

By giving employees the chance to choose whether they stay or go, this can help to reduce any allegations of unfairness because the decision is voluntary. Some employees may prefer to take redundancy for all sorts of reasons, including relishing the opportunity to change jobs, using the payout to start their own business or capitalising on already wanting to leave. The option of voluntary redundancy can also often help to safeguard staff who would prefer not to go, having only those who are willing to do so leave the business. In many cases, this can mean that employers are freeing themselves of staff who were already thinking of leaving or who may have been dissatisfied in their role for some time.

However, voluntary redundancy also comes with its own set of disadvantages. For example, you may be at risk of losing more staff than you would like, even if you have the choice. As an employer, you are not legally bound to accept a request for redundancy, even in circumstances where the voluntary redundancy process has been initiated by you. However, by forcing someone to stay, this may have an adverse impact on employee engagement and morale, especially when you know that they would potentially be open to leaving.

 

How to manage the voluntary redundancy process

When looking to offer voluntary redundancy, first and foremost, you must let employees know that just because they have volunteered, this does not mean that they will automatically be selected. For example, if an employee who volunteers for redundancy has a business-critical role, you may decide to retain that person. It is also important to decide on a fair selection criteria, where it is often wise to prepare a scoring framework to help you choose who to accept in the event that multiple people volunteer for redundancy.

When putting a framework in place to identify who would be suitable for voluntary redundancy, consideration should be given to the following key questions:

  • How will it impact the business as a whole if a certain employee leaves?
  • Will there be sufficient numbers to do this job, or in this department, if they leave?
  • Can someone more junior or senior take on this role’s responsibilities if they go?
  • Would it be better to keep this person, now they have made it clear that they would be willing to accept voluntary redundancy, or to accept their desire to be made redundant?
  • Can the business afford to cover the cost of their redundancy, where the redundancy pay for long-serving employees can equate to sizeable sums of money.

However, it is important to remember that in a genuine redundancy situation, it is a person’s role that is made redundant and not the person themselves. As in the case of White v HC-One Oval Ltd, you cannot make someone redundant, even if they volunteer to leave, and then immediately employ someone else to do the same or even similar role.

 

Voluntary redundancy and settlement agreements

When making voluntary redundancies, entering into a settlement agreement can be a sensible way forward. This is a legally binding document between an employer and employee designed to settle any claims that arise out of the employment relationship. In the context of a voluntary redundancy scenario, a settlement agreement can be used to formally terminate employment on mutually agreed terms, with the employee waiving their right to bring any tribunal claim against an employer in return for some form of payment.

There are various statutory requirements that must be satisfied for an agreement to be binding, including the employee receiving independent legal advice, which the employer will typically fund, but this can offer the best form of protection from any comeback.

 

Alternatives to compulsory redundancy

In addition to voluntary redundancy, employers should consider alternative options before making compulsory redundancies, such as:

  • filling vacancies elsewhere in the business with existing employees in circumstances where suitable alternative employment is available
  • offering employees across the workforce incentives to retire early
  • seeking applications from staff to work flexibly, such as part-time hours or job shares
  • reducing or banning overtime, and restricting new recruitment, for the foreseeable future
  • laying off self-employed contractors or freelancers from the business for the time being.

It can also be worth securing the advice of a redundancy specialist who can explore the different options available to you to help protect both your business and your workforce.

 

Need assistance?

The redundancy process is high risk and requires careful management to avoid complaints and potential legal claims. Poorly managed redundancies can also result in workforce issues such as demotivation and loss of talent.  To avoid issues when offering voluntary redundancy, contact us for specialist employment law advice.

 

Voluntary redundancy FAQs

What are the rules for voluntary redundancy?

When asking employees to volunteer for redundancy, there are still certain rules that must be followed, including adopting a fair and objective selection process. Employees may also be entitled to a minimum amount of redundancy pay and notice.

How much will I get if I take voluntary redundancy?

The amount an employee will be entitled to receive for accepting voluntary redundancy will depend on the employer’s offer or the terms of any negotiation, although employee’s with 2 years’ service must receive the statutory minimum redundancy pay.

Is voluntary redundancy a good idea?

Voluntary redundancy can be a sensible option for both employers and employees, where giving staff the chance to choose to leave, often in return for an attractive redundancy package, can help to avoid compulsory redundancies.

How do you explain voluntary redundancy?

Voluntary redundancy describes the process in which an employee voluntarily opts to take redundancy, where their employment will be terminated for this reason, typically in exchange for some kind of redundancy payout.

Last updated: 19 November 2023

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